Russia
Last Updated:
Jul 31, 2010
As the Russian property market continues to struggle, house prices dropped 7.56% from the previous year to Q1 2010. When adjusted for inflation, house prices actually plunged 13.8% over the same period, according to the latest figures from the Federal State Statistics Service (Rosstat), the national statistical agency.
In March 2010, the average price of a newly-build property was US$19,475 (RUB593,372) per square meter, according to international real estate firm Knight Frank. For resale properties, the average price was US$24,730 (RUB753,484) per square meter during the same period.
The Russian housing market has been in a massive boom in the past years. From 2000 to 2007, prices in the secondary market have risen 436%, while primary market prices have risen 362%.
Due to the global crisis, property prices started to weaken in late-2008, and finally declined in the second quarter of 2009. The average price of newly-built houses in Russia was US$1,566 (RUB47,715) per sq. m. in 2009, down by 9.12% from US$1,723 (RUB52,504) per sq. m. a year earlier, according to Rosstat. Also, the average price of resale houses fell by 6.37% to US$1,736 (RUB52,895) per sq. m. in 2009 from the previous year. Prices for newly-built and resale properties both peaked in 2008.
In 2009, Russia experienced the deepest recession in 15 years, with real GDP contracting by 7.9%. The economy started to recover in the second half of 2009. Then in May 2010, real GDP growth accelerated to 5.8% y-o-y, from 5.5% a month earlier. The Russian economy is projected to expand by about 4% in 2010.
Despite economic recovery, house prices and rents are expected to continue falling in 2010, albeit at a slower rate than in 2009. Demand remains relatively low. Foreign investors are still very cautious and reluctant to enter the local housing market. The country’s image in terms of attracting foreign investments has become quite negative, said Nikita Yarushnikov of Wermuth Asset Management.
The recovery of the Russian housing market is likely to be tepid, with house prices projected to pick up in the next three years.
According to the Land Code of 2001, private ownership of land and properties is allowed both for locals and foreigners. However, the legislation was extended to Moscow only in January 2006.
In March 2010, the average price of a newly-build property was US$19,475 (RUB593,372) per square meter, according to international real estate firm Knight Frank. For resale properties, the average price was US$24,730 (RUB753,484) per square meter during the same period.
The Russian housing market has been in a massive boom in the past years. From 2000 to 2007, prices in the secondary market have risen 436%, while primary market prices have risen 362%.
Due to the global crisis, property prices started to weaken in late-2008, and finally declined in the second quarter of 2009. The average price of newly-built houses in Russia was US$1,566 (RUB47,715) per sq. m. in 2009, down by 9.12% from US$1,723 (RUB52,504) per sq. m. a year earlier, according to Rosstat. Also, the average price of resale houses fell by 6.37% to US$1,736 (RUB52,895) per sq. m. in 2009 from the previous year. Prices for newly-built and resale properties both peaked in 2008.
In 2009, Russia experienced the deepest recession in 15 years, with real GDP contracting by 7.9%. The economy started to recover in the second half of 2009. Then in May 2010, real GDP growth accelerated to 5.8% y-o-y, from 5.5% a month earlier. The Russian economy is projected to expand by about 4% in 2010.Despite economic recovery, house prices and rents are expected to continue falling in 2010, albeit at a slower rate than in 2009. Demand remains relatively low. Foreign investors are still very cautious and reluctant to enter the local housing market. The country’s image in terms of attracting foreign investments has become quite negative, said Nikita Yarushnikov of Wermuth Asset Management.
The recovery of the Russian housing market is likely to be tepid, with house prices projected to pick up in the next three years.
According to the Land Code of 2001, private ownership of land and properties is allowed both for locals and foreigners. However, the legislation was extended to Moscow only in January 2006.
Analysis of Russia Residential Property Market »
RENTAL YIELDS
Last Updated: Jun 25, 2009
Moscow apartment gross rental yields are now only 3.41%, on average - 1.62% lower than a year ago.
This is a very significant shift. Apartment prices decreased slightly in Moscow, or at least prices of the upper-end central-Moscow apartments which feature in our survey did - to an average of US$17,899 per square metre (sq. m.). So rents in Moscow must have fallen considerably.
A typical 120-sq. m Moscow apartment can now generate a yield of around 3.45%, and sell for about US$16,521 per sq. m.
St. Petersburg apartments generate higher yields at around 6.9%, on average.
Yields have also fallen in St. Petersburg. The Global Property Guide estimates that average St. Petersburg yields have fallen by 1.57% since the same period last year.
Compared to a 120-sq. m apartment in Moscow, an apartment in St. Petersburg of the same size typically yields around 6.21%, and sells for US$5,166 per sq. m.
This is a very significant shift. Apartment prices decreased slightly in Moscow, or at least prices of the upper-end central-Moscow apartments which feature in our survey did - to an average of US$17,899 per square metre (sq. m.). So rents in Moscow must have fallen considerably.
A typical 120-sq. m Moscow apartment can now generate a yield of around 3.45%, and sell for about US$16,521 per sq. m.
St. Petersburg apartments generate higher yields at around 6.9%, on average.
Yields have also fallen in St. Petersburg. The Global Property Guide estimates that average St. Petersburg yields have fallen by 1.57% since the same period last year.
Compared to a 120-sq. m apartment in Moscow, an apartment in St. Petersburg of the same size typically yields around 6.21%, and sells for US$5,166 per sq. m.
TAXES AND COSTS
Last Updated: Jul 23, 2008
Rental Income: Rental income for non-residents is taxed at the flat rate of 30%. The rental income of foreign legal entities without a permanent establishment in Russia is subject to withholding tax, levied on gross rentals at 20%.
Effective Tax Rate on Rental Income | |||
| Monthly Income | €1,500 | €6,000 | €12,000 |
| Tax Rate | 30% | 30% | 30% |
| Click here to see a worked example | |||
| Source: PWC Disclaimer | |||
Capital Gains: Capital gains realized by non-residents for selling Russian property are taxed at a flat rate of 30%.
Effective Tax Rate on Capital Gains | ||
| Property Value | €25,000 | €2 million |
| Tax Rate | 60% | 60% |
| Click here to see a worked example | ||
| Source: PWC Disclaimer | ||
Inheritance: Since January 1, 2006, there has been no inheritance tax.
Residents: Residents are taxed on their worldwide income at a flat rate of 13% with numerous deductions available.
BUYING GUIDE
Last Updated: May 14, 2007
According to Global Property Guide research, total roundtrip costs are between 20% and 25.5% of the property value, among the highest in Europe. Bulk of the cost goes to VAT at 18%. Brokerage fees amount to 2% for properties more than US$2 million, otherwise the fee is 5%. The buyer should be cautious when buying unfinished units.
LANDLORD AND TENANT
Last Updated: Nov 13, 2006
Russia’s rental market is pro-tenant.Rents: Rent is by agreement between the parties. However, rents can only be adjusted after one year.
Tenant Security: The tenant can only be evicted after non-payment of rent for six months. However, the tenant is given up to a year to amend the violation. The tenant can also cancel the contract anytime simply by giving a three months’ notice.
ECONOMIC GROWTH
Last Updated: Jul 31, 2010
Russian economy recovers
Russia is the largest country in the world in terms of land area, larger than the rest of Europe and USA combined. Although the population has been declining slightly, at 142 million in 2007 it is the sixth largest in the world.
Russia is heir to the former Soviet Union. After the union collapsed in 1991, Russia lost much of its international influence as a superpower. Since then, it has engaged in a constant tug of war with the West, for influence over the former Soviet republics.
Russia has the world's largest natural gas reserves, the 2nd largest coal reserves and the 8th largest oil reserves. It is the world's leading natural gas exporter and the second leading oil exporter. In 2007, it was the world’s top oil producer, overtaking Saudi Arabia.
Russia also has huge amounts of mineral reserves including platinum, nickel, aluminum, iron ore, copper gold and diamond. Oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Revenues from oil and gas account for 50% of Russia’s budget.
Russia enjoyed robust economic growth from 1999 to 2008, with an average GDP growth rate of 6.8% per year, thanks to high energy and commodity revenues during those years.
However, the Russian economy fell into a deep recession in 2009 when global energy prices started to drop in the second half of 2008. Real GDP contracted by 7.9% in 2009, the deepest recession in 15 years.
After a deep slump in the past two years, energy prices are rising again. The price for Brent crude oil rose by 61% to US$74.8 (RUB2,275) per barrel in June 2010, from US$46.5 (RUB1,414) per barrel in March 2009.
The Russian economy started to post positive q-o-q results in the second half of 2009, with GDP expanding 1.1% in Q3 and 3.7% in Q4 2009. Real GDP growth accelerated to 5.8% y-o-y in May 2010, from 5.5% in April 2010. The Russian economy is projected to expand by about 4% in 2010.
The inflation rate was at 6% in April 2010, the lowest in 12 years. The sharp decline can be attributed to a stronger ruble, a weaker euro, depressed consumer demand, and lower import prices, according to the Ministry of Economic Development. The country’s core inflation was 8.3% in 2009, a sharp decline from 13.6% in 2008, according to Bank of Russia.
In June 2010, the central bank left its main interest rates unchanged, as the economy recovers and inflation slows. This signals an end to a 14 consecutive months of interest rate cuts. The repo rate was kept unchanged at 6.57% while the refinancing rate was set at 7.75%.
Russia is heir to the former Soviet Union. After the union collapsed in 1991, Russia lost much of its international influence as a superpower. Since then, it has engaged in a constant tug of war with the West, for influence over the former Soviet republics.
Russia has the world's largest natural gas reserves, the 2nd largest coal reserves and the 8th largest oil reserves. It is the world's leading natural gas exporter and the second leading oil exporter. In 2007, it was the world’s top oil producer, overtaking Saudi Arabia.
Russia also has huge amounts of mineral reserves including platinum, nickel, aluminum, iron ore, copper gold and diamond. Oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Revenues from oil and gas account for 50% of Russia’s budget.
Russia enjoyed robust economic growth from 1999 to 2008, with an average GDP growth rate of 6.8% per year, thanks to high energy and commodity revenues during those years.
However, the Russian economy fell into a deep recession in 2009 when global energy prices started to drop in the second half of 2008. Real GDP contracted by 7.9% in 2009, the deepest recession in 15 years.
After a deep slump in the past two years, energy prices are rising again. The price for Brent crude oil rose by 61% to US$74.8 (RUB2,275) per barrel in June 2010, from US$46.5 (RUB1,414) per barrel in March 2009.
The Russian economy started to post positive q-o-q results in the second half of 2009, with GDP expanding 1.1% in Q3 and 3.7% in Q4 2009. Real GDP growth accelerated to 5.8% y-o-y in May 2010, from 5.5% in April 2010. The Russian economy is projected to expand by about 4% in 2010.
The inflation rate was at 6% in April 2010, the lowest in 12 years. The sharp decline can be attributed to a stronger ruble, a weaker euro, depressed consumer demand, and lower import prices, according to the Ministry of Economic Development. The country’s core inflation was 8.3% in 2009, a sharp decline from 13.6% in 2008, according to Bank of Russia.
In June 2010, the central bank left its main interest rates unchanged, as the economy recovers and inflation slows. This signals an end to a 14 consecutive months of interest rate cuts. The repo rate was kept unchanged at 6.57% while the refinancing rate was set at 7.75%.
